After Blue Grass Airport board members got the official word that $500,000 in staff expenses had been deemed improper by the state auditor, they had to write a $78,000 check to pay for the investigation.
Now, two non-profits — the Kentucky League of Cities and the Kentucky Association of Counties — will undergo similar scrutiny by State Auditor Crit Luallen's staff. And those audits are expected to come at an even higher price.
"We believe it may exceed $100,000 for each," said Cindy James, assistant state auditor. It's still unclear how long the reviews will take, she said.
Entities reviewed by the state auditor's office must cover the costs associated with those investigations.
That leads to a costly double-whammy for public agencies and non-profit boards that fail to have strong financial oversights from the beginning.
"The cost of the audit is an avoidable cost, but you also have the costs of any excessive spending that they might avoid in the future," James said. "Those would be lost dollars as well."
As a result, board members serving public organizations have been rushing to bolster their oversight and educate themselves about their responsibilities.
Luallen said her office has been inundated with requests to review procedures at organizations or make presentations about board members' roles since the Herald-Leader reported about expenses at Blue Grass Airport.
She compiled 28 recommendations for non-profit and public boards.
Her office began auditing KACo and the League this month following Herald-Leader reports that the top five executives at KACo spent $600,000 on travel, meals and other purchases in two years, and that the League's three leaders incurred $300,000 in expenses in three years.
"It's my hope that the public controversies surrounding these high-profile agencies ... result in lessons learned for all of us in the public arena," she said in a recent speech to local elected officials.
KACo's board is bracing to pay the price for such lessons.
At a special meeting Thursday, the board set aside $250,000 from its contingency funds to cover the cost of the audit and to hire Robert L. "Bobby" Russell, an attorney and former Transportation Cabinet inspector general, to perform a management review.
Checking the spending
With such big dollars at stake, board members and organizations across the state have taken notice.
About 40 people representing 25 non-profit and public groups in Harrison County attended a presentation by Luallen earlier this month, Judge-Executive Alex Barnett said.
"People are really attuned to the situation right now," he said, citing KACo, the League, the airport and the Lexington Public Library.
Most groups in Harrison County have small budgets — and, thus, less money to squander — but the county of fewer than 18,700 people has been stung by lax oversight at a non-profit agency.
Last year, the county investigated the administrator of the Harrison County Senior Citizens Center, who had charged nearly $20,000 in less than a year on the center's credit card, Barnett said. She was fired and convicted of a felony, he said.
"Part of the problem with these smaller county boards is the checks and balances," Barnett said. "The same person who makes the purchases shouldn't be the same person who checks it over to make sure it's right."
The use of credit cards issued by organizations and the lack of board oversight of expenses have been at the center of controversies at the four organizations for which the Herald-Leader has reviewed documents.
In each case, board members failed to check on the spending of the executive director.
The boards at each of those organizations have since canceled most of the credit cards.
KACo's president, J. Michael Foster, took away the staff credit cards last week and created an audit committee to regularly review travel and other expenses.
Foster has pledged to make more changes after Luallen's audit is complete.
Fixing the problems
LaRue County Judge-Executive Tommy Turner, a KACo board member and former president, has circulated other suggestions to further overhaul policies.
■ Modeling KACo's budget after the counties, so that detailed line items show how much employees are allotted for salaries, meals and travel. That might take the budget from two pages to 40 pages, "but then again, it would be much easier for the board to keep track of the money," he said.
■ Tying the executive director's salary to the amount the judge-executives of the most populous counties make. At KACo, executive director Bob Arnold earns $178,000 a year.
■ Applying state policies for meal reimbursements and the use of autos. For example, state employees' meals are paid for only on occasions when they are staying overnight. Specifically, Turner suggested giving preference to Kentucky manufacturers, such as Ford or Toyota. Last year, KACo bought a 2008 BMW SUV for $40,000 for Arnold's personal and business use.
Turner said most officials have responded favorably to his suggestions and want to see KACo's spending problems fixed to preserve the necessary services it offers.
Said Turner: "Most of us are on the same sheet of music."